Brent oil fell in London, narrowing its record premium to the main U.S. grade, on speculation that an end to Muammar Qaddafi’s rule in Libya will lead to a recovery in the nation’s crude production. Brent’s premium to West Texas Intermediate, the grade traded in New York, narrowed the most in five weeks as rebel fighters entered the capital city of Tripoli. Brent advanced 19 percent in the first six months of 2011 as an armed rebellion against Qaddafi disrupted Libya’s supplies. “This is the beginning of the traders getting out of the long Brent-WTI spread,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. Brent crude oil for October settlement dropped 26 cents to $108.36 a barrel on the London-based ICE Futures Europe exchange. The contract has climbed 14 percent this year. Crude oil for September delivery gained $1.86, or 2.3 percent, to settle at $84.12 on the New York Mercantile Exchange. The September contract expired today. Prices have slumped 7.9 percent this year and are down 27 percent from their 2011 peak on May 2. October futures, the most actively traded contract, rose $2.01, or 2.4 percent, to $84.42. Brent, more sensitive to global supply disruptions than WTI because it’s a benchmark for half of the world’s oil, tumbled as much as 3.2 percent in intraday trading. Oil traded in New York rose as Hurricane Irene strengthened in the Atlantic Ocean and as equities increased. Brent settled at a $23.94 premium to WTI, down from a record $26.21 on Aug. 19. Libyan Production Libya’s output dropped to 100,000 barrels a day in July, down from 1.6 million the nation pumped before the uprising began in February, a Bloomberg News survey showed. “Qaddafi hasn’t been found yet but it looks like his rule is over, which is having a big impact on Brent,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The Brent market rose the most when Libyan production was disrupted, so it makes sense that it would be the weakest now that it appears to be coming back.” Libya produces light, sweet crude, or oil with low density and sulfur content, which can easily be refined into high-value diesel and other fuels. Brent Premium “It’s not surprising that Brent is falling because the availability of light, sweet crude for European refiners will increase,” said Rick Mueller, a principal with ESAI Energy, LLC in Wakefield, Massachusetts. “A large part of the increase in Brent prices this year was due to the Libyan conflict.” Price declines triggered by the news that the rebels have entered Tripoli will be tempered because exports won’t resume immediately, according to Emmanuel Fages, an energy analyst with Societe Generale SA in Paris. “We are talking months before anything can happen, maybe 2012,” Fages said. Hedge funds and other money managers increased bullish bets on Brent crude by 1.5 percent in the week ended Aug. 16, according to data from ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 49,608 contracts, the London-based exchange said today in its weekly Commitments of Traders report. Net-long positions rose by 756 contracts, from 48,852 a week earlier. Commitments of Traders Hedge funds and other speculators cut wagers on rising crude in New York prices by 0.1 percent to 142,769 in the week ended Aug. 16, according to the Commodity Futures Trading Commission’s Commitments of Traders report. The Organization of Petroleum Exporting Countries will react if prices continue to slump, Iranian OPEC governor Mohammad Ali Khatibi said, according to comments on the oil ministry’s website. Still, he said there’s no need for the organization to convene an emergency meeting now. Oil may rise if operations in the Gulf of Mexico are disrupted by this year’s Atlantic storm season, which runs between June and November. Irene became the first hurricane of the season, strengthening from a tropical storm as it moved toward the southeastern Bahamas on a path that could take it to South Carolina by week’s end, the U.S. National Hurricane Center said. Irene was about 150 miles (240 kilometers) west-northwest of San Juan, Puerto Rico, as of 2 p.m. Miami time and moving west-northwest at 12 mph, according to the center. The Standard & Poor’s 500 Index rose 0.3 percent to 1,123.82 at 4:19 p.m. in New York and the Dow Jones Industrial Average gained 0.3 percent to 10,854.65 amid speculation the Federal Reserve will act to stimulate the economy. Oil volume in electronic trading on the Nymex was 570,559 contracts as of 3:20 p.m. in New York. Volume totaled 791,659 contracts Aug. 19, 16 percent above the average of the past three months. Open interest was 1.47 million contracts. To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Margot Habiby in Dallas at mhabiby@bloomberg.net. To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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